You heard it here first – the Commerce Commission has rejected Vero’s bid for Tower Insurance on the basis that it could substantially reduce competition. While making no comment on that, we are asking whether the CommComm was asleep at the wheel when they allowed the giant IAG group to buy not only AMI, but more importantly their largest competitor at the time – Lumley Insurance. The level playing field appears to have fallen off the cliff, with IAG/NZI/Lumley/AMI etc estimated to now control around 70% of the vehicle insurance market in NZ. See the full story at http://insurancenews.com.au/breaking-news/commerce-commission-rejects-vero-purchase-of-tower.
Commerce Commission rejects Vero purchase of Tower
26 July 2017
The New Zealand Commerce Commission has declined Vero’s application to acquire 100% of the shares in Tower Limited.
The commission says the merger would bring together the second and third largest insurers for domestic house, contents and private motor insurance in New Zealand, leaving only two substantial competitors.
Chairman Mark Berry says the merger could “substantially lessen” competition in the personal insurance market.
“The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets,” he said.
“While there are other smaller competitors in personal insurance, we do not consider that they replicate the level of constraint that Tower imposes.
“Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage.”
Suncorp says it is disappointed with the decision, and Tower says it will work with Vero to assess the implications.
More details in our regular bulletin on Monday.
Don’t delete your Tower Insurance claim forms yet, it looks like you’ll still need them. See https://crashmanagement.co.nz/clients/insurance-claims/tower-insurance-car-claims/
Leslie
There was a bit more commentry on the failed Vero/Tower deal today on Insurance News. The headline’s TOWER MUST FIND A NEW BACKER OR FOLD. http://www.insurancenews.com.au/corporate/tower-must-find-new-backer-or-fold. That would be a shame especially after the Commerce Commission got it so wrong with the Lumley take-over by IAG – talk about “reducing competition” – what were they thinking! Ask any broker for an opinion on that one. Good luck Tower, sounds like you might need it!
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Tower needs to find a new financier after New Zealand’s Commerce Commission declined Vero’s application to acquire the insurer, according to an industry expert.
As reported in a Breaking News bulletin last week, commission Chairman Mark Berry says the merger could “substantially lessen” competition in the personal insurance market, leaving just Vero and IAG as the only significant insurers in the market.
Michael Naylor, Senior Lecturer in Finance and Insurance at Massey University, told insuranceNEWS.com.au he is not surprised by the decision.
But he says Tower, which was subject to a previous bid from Canada’s Fairfax Financial Holdings, urgently needs to find a new backer.
“In terms of logic, the [Vero] deal had no basis,” he said. “But Tower cannot stand alone. Either it goes back to Fairfax, finds another international backer, or it folds up.”
Dr Naylor understands Vero parent Suncorp may feel aggrieved, because IAG’s purchase of Lumley was approved by the commission in 2014.
“There may be a feeling of, if they can buy a major player, why can’t we?” he said.
“But the Lumley takeover is regarded by the industry as a mistake. It is what ruined competition in the market.
“Why would the commission make the same mistake again?”
Suncorp says it is disappointed, but is yet to provide any indication of its intentions.
Dr Naylor says there are avenues to appeal, but he “can’t see a court agreeing with Suncorp”.
The commission says the merger would bring together the second and third-largest insurers for domestic house, contents and private motor insurance in New Zealand, leaving only two substantial competitors.
“The merger would remove Tower as the only independent competitor to Vero and IAG with the scale, brand strength and experience to compete effectively across the breadth of personal insurance markets,” Dr Berry said.
“While there are other smaller competitors in personal insurance, we do not consider that they replicate the level of constraint that Tower imposes.
“Without the competition that Tower provides, there is a real risk that consumers would end up paying higher prices for insurance cover while receiving lower quality, such as reduced insurance coverage.”
Ken Black
For the record Tower Insurance claims are good to work for so not all insurance companys are bad or unfair with their pricing. Have to agree about the monopoly thing re Vero Insurance takeover from Tower Insurance though so good to see its not happening. We all know IAG NZI insurance etc have way too much control over the collision repair industry and have just about driven us out of business. Some insurance companys are really good to work with like Allianz Insurance includingg Protecta, and QBE Insurance, and Zurich Auto Insurance are ok depending which assessor is assigned. Hope to see Tower Insurance continue. thanks
Crash Management
Thanks for your comments Ken. Crash Management does understand the pressure the collision repair industry is under as a result of years of aggregation by the big brand insurance companies. By working with the right high- quality panelbeaters across the country and delivering additional pre-qualified business to them when our clients have car insurance claims, hopefully can provide value to the sector as well as our customers & business partners. We’ve had many cases recently where we’ve been able to work with our insurance broker allies to achieve a better result for our valued panel & paint specialists to ensure technically correct and compliant collision repair methodology is used. We’re pleased to be able to advocate for our quality panelbeaters and for our clients to ensure vehicles are returned to manufacturers specifications and remain safe on our roads.
Ian Harris
There was also a review by the International Monetary Fund recently that recommended tougher controls on the NZ insurance sector particularly around supervision. the IMF made the comment that the NZ insurance sector is small and highly concentrated with intensive foreign ownership and I think we’d all agree with that. What’s the old saying – Power corrupts, and absolute power corrupts absolutely! See more at https://issuu.com/benefitz/docs/iba164568_covernote_june_2017_web_v/6
Debs
It looks like it’s all OVER ROVER. Vero has withdrawn the appeal to take over Tower Insurance https://www.stuff.co.nz/business/98639516/suncorp-withdraws-tower-takeover-appeal
It’s the best outcome for the market, but seems unfair and very inconsistent with the ComCom decision allowing IAG to take over Lumley, That was not well received by the broker sector!
Broker 1979
Agree with your points however Vero would be justified in feeling aggrieved over the Tower Insurance decision, the Commerce Commission was extremely inconsistent given the IAG acquisition of Lumley, that decision really did blind-side the broker sector. The market’s very compromised and no-one’s happy about it at all.